Local Revenue Hills: Evidence from Four U.S. Cities
We provide estimates of the effects and long-run elasticities of the tax base with respect to tax rates for four large U.S. cities: Houston (property taxation), Minneapolis (property taxation), New York City (property, general sales, and income taxation), and Philadelphia (property, gross receipts, and wage taxation). Results suggest that three of our cities are near the peaks of their revenue hills; Minneapolis is the exception. A significant negative effect of a balanced-budget increase in city property tax rates on the city property base is interpreted as a capitalization effect and suggests that marginal increases in city spending do not provide positive net benefits to property owners. Estimates of the effects of taxes on city employment levels for New York City and Philadelphia'the two cities for which employment series are available-show the local income and wage tax rates have significant negative effects on city employment levels. Cuts in these tax rates are likely to be an economically cost-effective way to increase city jobs. High taxes, sometimes by diminishing consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes. (Adam Smith, The Wealth of Nations, book V, chapter II.)It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. (Alexander Hamilton, "Further Defects of the Present Constitution," Federalist Papers, No. 21.)If a tax is gradually increased from zero up to the point where it becomes prohibitive, its yield is at first nil, then increase by small stages until it reaches a maximum, after which it gradually declines until it becomes zero again. [Jules Dupuit, "On the Measurement of Utility from Public Works," reprinted in K. Arrow and Tibor Scitovsky, Readings in Welfare Economics (Homewood, IL: Richard D.Irwin, 1969).]Nor should the bbargument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction bbbbbof taxation will run a better chance than increase of balancing the budget. (John Maynard Keynes, Collected Works of John Maynard Keynes, St. Martin's Press, p. 338.) © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 86 (2004)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levitt, Steven D, 1997.
"Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime,"
American Economic Review,
American Economic Association, vol. 87(3), pages 270-90, June.
- Steven D. Levitt, 1995. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Policeon Crime," NBER Working Papers 4991, National Bureau of Economic Research, Inc.
- Lars P. Feld & Gebhard Kirchgässner, 2001.
"The Impact of Corporate and Personal Income Taxes on the Location of Firms and on Employment: Some Panel Evidence for the Swiss Cantons,"
CESifo Working Paper Series
455, CESifo Group Munich.
- Feld, Lars P. & Kirchgassner, Gebhard, 2003. "The impact of corporate and personal income taxes on the location of firms and on employment: some panel evidence for the Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(1), pages 129-155, January.
- Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
- Haughwout, Andrew F., 1998. "Aggregate Production Functions, Interregional Equilibrium, and the Measurement of Infrastructure Productivity," Journal of Urban Economics, Elsevier, vol. 44(2), pages 216-227, September.
- Douglas Staiger & James H. Stock, 1994.
"Instrumental Variables Regression with Weak Instruments,"
NBER Technical Working Papers
0151, National Bureau of Economic Research, Inc.
- Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
- Hines, James R, Jr, 1996.
"Altered States: Taxes and the Location of Foreign Direct Investment in America,"
American Economic Review,
American Economic Association, vol. 86(5), pages 1076-94, December.
- James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
- Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Chains of Ownership, Regional Tax Competition, and Foreign Direct Investment," NBER Working Papers 9224, National Bureau of Economic Research, Inc.
- Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
- Mark, Stephen T. & McGuire, Therese J. & Papke, Leslie E., 2000. "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 105-24, March.
- Julie Berry Cullen & Steven D. Levitt, 1999.
"Crime, Urban Flight, And The Consequences For Cities,"
The Review of Economics and Statistics,
MIT Press, vol. 81(2), pages 159-169, May.
- Julie Berry Cullen & Steven D. Levitt, 1996. "Crime, Urban Flight, and the Consequences for Cities," NBER Working Papers 5737, National Bureau of Economic Research, Inc.
- Edward L. Glaeser & Matthew E. Kahn, 1999. "From John Lindsay to Rudy Giuliani: the decline of the local safety net?," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 117-132.
- Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-83, May.
- Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, December.
- Goolsbee, Austan & Maydew, Edward L., 2000.
"Coveting thy neighbor's manufacturing: the dilemma of state income apportionment,"
Journal of Public Economics,
Elsevier, vol. 75(1), pages 125-143, January.
- Austan Goolsbee & Edward L Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
- Robert Inman, 2003. "Should Philadelphia's suburbs help their central city?," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 24-26.
- Haughwout, Andrew F. & Inman, Robert P., 2001.
"Fiscal policies in open cities with firms and households,"
Regional Science and Urban Economics,
Elsevier, vol. 31(2-3), pages 147-180, April.
- Andrew Haughwout & Robert P. Inman, 2000. "Fiscal Policies in Open Cities with Firms and Households," NBER Working Papers 7823, National Bureau of Economic Research, Inc.
- Gyourko, Joseph & Tracy, Joseph, 1989. "Local public sector rent-seeking and its impact on local land values," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 493-516, August.
- Brueckner, Jan K., 1982. "A test for allocative efficiency in the local public sector," Journal of Public Economics, Elsevier, vol. 19(3), pages 311-331, December.
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:86:y:2004:i:2:p:570-585. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Pollock-Nelson)
If references are entirely missing, you can add them using this form.